To say that Korea's rising household debt is causing concern is way too simple. The question is how serious the problem is when considered relative to other countries.
A recent report said Korea's total debt ― including the debts of the government and corporations ― has passed 4,500 trillion won. This may sound like a huge amount of money, but compared with debts in countries such as the U.S. and Japan, it is peanuts.
Total debt passed 4,000 trillion won in 2011 and has increased by 432 trillion won since then, with household debt rising by 7.8 trillion won in October alone.
This is where the problem lies. As Nobel economics laureate Paul Krugman argues time and time again, the government must increase its spending when the economy is slow, even at the cost of incurring higher debt. He insists that national debt can be addressed and reduced when the economy ― as a result of its spending ― gets back on its feet.
And the Korean government obviously realizes that the national debt ― as well as corporate debt because companies are sitting on a huge amount of cash ― is manageable. While the government is trying to increase spending to boost the economy ― the 375 trillion won budget for next year is generally seen as healthy as approved by the National Assembly ― the household situation looks bleak.
The situation is a little different from what happened in the U.S. where individuals suffered a setback due to sub-prime mortgages ― a situation in which a person borrows a lot and then housing prices fall to a point where selling the property is not enough.
In Korea, many households are in big debt mostly because of housing rents. With the real estate market way down, people do not want to make purchases and landlords are pushing up rents, making them some of the highest in history.
Making the situation worse is that this comes as baby boomers (1955-1963) are retiring and choosing to invest their pensions in undesirable projects. Most of these retirees are investing in restaurants, many of which are not doing well because of the slow economy. Add to this the fact that they have little knowledge of business and end up with nothing but debt.
Total debt run up by these private businesses is no less than 215 trillion won, which has only added to household lending, which has already reached 1,060 trillion won.
As if households are not in enough trouble, the finance ministry said recently that it would introduce regulations to limit additional debt by households in the secondary financial market.
It is important to recognize serious problems in the financial market, but another is to find a solution by putting greater pressure on consumers who are crucial for reviving the economy.
A recent report said Korea's total debt ― including the debts of the government and corporations ― has passed 4,500 trillion won. This may sound like a huge amount of money, but compared with debts in countries such as the U.S. and Japan, it is peanuts.
Total debt passed 4,000 trillion won in 2011 and has increased by 432 trillion won since then, with household debt rising by 7.8 trillion won in October alone.
This is where the problem lies. As Nobel economics laureate Paul Krugman argues time and time again, the government must increase its spending when the economy is slow, even at the cost of incurring higher debt. He insists that national debt can be addressed and reduced when the economy ― as a result of its spending ― gets back on its feet.
And the Korean government obviously realizes that the national debt ― as well as corporate debt because companies are sitting on a huge amount of cash ― is manageable. While the government is trying to increase spending to boost the economy ― the 375 trillion won budget for next year is generally seen as healthy as approved by the National Assembly ― the household situation looks bleak.
The situation is a little different from what happened in the U.S. where individuals suffered a setback due to sub-prime mortgages ― a situation in which a person borrows a lot and then housing prices fall to a point where selling the property is not enough.
In Korea, many households are in big debt mostly because of housing rents. With the real estate market way down, people do not want to make purchases and landlords are pushing up rents, making them some of the highest in history.
Making the situation worse is that this comes as baby boomers (1955-1963) are retiring and choosing to invest their pensions in undesirable projects. Most of these retirees are investing in restaurants, many of which are not doing well because of the slow economy. Add to this the fact that they have little knowledge of business and end up with nothing but debt.
Total debt run up by these private businesses is no less than 215 trillion won, which has only added to household lending, which has already reached 1,060 trillion won.
As if households are not in enough trouble, the finance ministry said recently that it would introduce regulations to limit additional debt by households in the secondary financial market.
It is important to recognize serious problems in the financial market, but another is to find a solution by putting greater pressure on consumers who are crucial for reviving the economy.
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